From the ground up

Analysts say airlines must adopt an entrepreneurial, highly adaptive approach to recover from Sept. 11

It is a graphic snapshot of the state of the airline industry today: acres of airplanes parked in rows, like abandoned toys, at a desert airport 100 miles north of Los Angeles.

At last count, before the Mojave Airport manager stopped talking to the press for "security reasons," there were more than 200 aircraft there. They are just some of the planes grounded by airlines as the aviation industry confronts the worst crisis in its history.

Announced layoffs have extended to about 100,000. Estimates of revenue losses for this year range from $5.5 billion to $10 billion.

"Let's face it," says one airline executive, "the industry is flat on its back."

Already beginning to weaken before the terrorist attacks of Sept. 11, the nation's airlines now face a dramatically changed business landscape.

Not only are there short-term goals to achieve, such as tightening security and winning back passengers; there are also long-term uncertainties that experts say could ground some carriers for good.

A $15 billion government bailout - $10 billion of it of it in guaranteed loans - is no panacea, some experts say. It could extend the lives of weak carriers that could soon go bankrupt anyway.

The proposed loans could also lead to increased federal involvement in airline operations. Many analysts say that could sharply limit the innovation and competition required today.

In an industry called conservative by many analysts - "pigheaded" by one - only the most adaptive, entrepreneurial carriers will survive.

"Philosophically, most airlines are not prepared for this," says Michael Boyd, an aviation consultant in Evergreen, Colo. "We can't rely on the same leadership anymore. We need leadership to respond in a wartime fashion."

One carrier experts predict will succeed: Dallas-based Southwest Airlines, the low-cost, low-fare carrier, which posted a third-quarter profit, something few airlines did. Southwest, which enjoys a near-legendary loyalty from its employees and customers, has often done well when faced with adversity.

Early in its 30-year history, for example, the company sold one of its four planes to meet payroll obligations. Employees responded by speeding up the turnaround time for servicing an aircraft, allowing the airline to make the same number of flights with three planes as it had with four.

After the September attacks, Southwest employees helped the company save money by working some hours without pay. (American Airlines executives promised a similar move last week, after announcing record third-quarter losses.)

And when curbside check-in was shut down, Southwest devised a plan that let it resume the practice a week before any other airline.

"Our success really comes from the fact that our people have a clear understanding of what our mission is, and they believe in it," says Southwest CEO James Parker. "And they figure out how to adapt that mission to whatever critical situation you're facing at the time."

In the near term, Southwest and other airlines face factors that are largely beyond their control. Experts note the psychological dimensions involved with people becoming comfortable about flying again, and they point to the federal government's role in creating and implementing tougher security measures.

Instead of leaving security up to airlines - which resulted in high-turnover, low-salaried security screeners - the government needs to take over those operations, perhaps creating a national agency for aviation security, argue many aviation analysts, as well as associations of pilots and flight attendants.

Although armed National Guardsmen have been posted in the nation's airports, the nation's largest union of flight attendants, and two other smaller unions, recently criticized the current state of security. They called for the immediate implementation of tighter measures, including screening all checked baggage and every employee with access to secured areas.

"I think the cosmetic changes, such as having the National Guard, have left a great deal of people with the impression that every possible thing has been done," says Northwest Airlines flight attendant Danny Campbell, president of Teamsters Local 2000 in Bloomington, Minn.

"But they don't know all the mechanics in terms of how items get through security," he adds, "and all the various places that things can get through."

Delta Airlines Capt. Dennis Dolan, first vice-president of the Air Line Pilots Association, says that the flight attendants "have a right to be frustrated."

But in meetings with the Federal Aviation Administration and airline industry officials who are working to implement new security recommendations, he says, "I've never seen people get together and move things forward as fast as I have since September 11.

"A lot of good improvements are coming," says Captain Dolan, who says he is convinced that it's safe to fly. "The problem with a lot of [the needed fixes] is they can't be done quickly. But there are a lot of people working very hard to make these things happen. Every day that goes by, it gets better."

Even with new security measures in place and a public more willing to fly, the industry still faces long-term changes, shifts that began before the attacks.

After recovering from a downturn in the early 1990s, caused in part by the Gulf War, airlines enjoyed record profits and, according to some analysts, overextended themselves, buying too many planes and flying to too many markets.

As the economy slowed, and business travelers - who account for as much as 70 percent of airline profits - cut back on travel, some of the bigger airlines found themselves in financial trouble.

After Sept. 11, their outlook worsened. United's top executive predicted that airline's demise. Some analysts say that statement may have been intended in part to boost the carrier's leverage with labor unions.

Still, the shakeout may well mean bankruptcies for some airlines. Carriers like Southwest, analysts say, may well find opportunities to expand, as larger carriers cut back on routes.

And overall, they say, flying may become a lot more like bus travel - basic service that simply involves getting passengers from one point to another.

In that kind of environment, analysts note, factors such as on-time performance (controllable to some degree) and positive employee attitudes - both trademarks of Southwest Airlines - become even more important in building a successful airline.

"It's very difficult to reinvent yourself as a low-cost anything," says Hans Weber, a San Diego-based aviation consultant. "Normally, there's a process of creative destruction, like going bankrupt, that opens a door to something new. I'm not a pessimist about the industry," he says. "We need to fly. We want to fly. We'll continue to fly. We'll just be doing it a little bit differently."